We argue that social polarization reduces the security of property and contract rights and, through this channel, reduces growth. The first hypothesis is supported by crosscountry evidence indicating that polarization in the form of income inequality, land inequality, and ethnic tensions is inversely related to a commonly-used index of the security of contractual and property rights. When the security of property rights is controlled for in cross-country growth regressions, the relationship between inequality and growth diminishes considerably. This and other evidence provides support for our second hypothesis, that inequality reduces growth in part through its effect on the security of property rights.

Authors

Keefer, Philip

Philip Keefer is Research Director at the World Bank Development Research Group
Areas of Interest:
Political incentives and economic development
Impact of insecure property rights on economic growth
Governance and economics
Education:
Ph.D. (Economics) 1991, Washington...

Knack, Stephen

Stephen Knack is a Lead Economist in the World Bank's Research Department and Public Sector Governance Department. His recent research addresses the impact of aid on policy reform and on public sector capacity and accountability. He is a specialist on actionable governance...